Finance

Definition: An Option is an agreement wherein the seller grants the right to the buyer, not the obligation to buy or sell the security at a predetermined price for a specified period of time. Simply, An option is right and does not constitute the obligation on the part of both the sellers and buyers to buy or sell the underlying security at a predefined price during a specified … [Read more...] about Risk Hedging with Options

Definition: Many companies buy insurance to hedge against the different kinds of risks, such as the risk of property damage, risk of fire, risk of plant destruction, the risk of liabilities, etc. When a company buys the insurance, it pays a premium to shift the risks to the insurance company. Which insurance company the firm prefers over the others depends on the advantages … [Read more...] about Risk Hedging with Insurance

Definition: A Swap is a financial agreement wherein the parties agree to trade cash flows over a period of time. It is the portfolio of a forward contract that involves multiple exchanges over a period of time while the forward contract involves a single transaction at a specific future date. The swaps are the highly liquid financial derivatives and have the following … [Read more...] about Risk Hedging with Swaps

Definition: The Future Contracts are the standardized Forward Contracts wherein two parties mutually decide to sell or buy the underlying asset at a predefined future date and at a price locked today. These are considered as a less risky alternative of hedging against the currency market fluctuations. If the future contracts are the forward contracts, then why it is … [Read more...] about Difference Between Forward Contracts and Future Contracts

Definition: The Future Contract is a standardized forward contract between two parties wherein they agree to buy or sell the underlying asset at a predefined date in the future and at a price specified today. The future contracts are a relatively less risky alternative of hedging against the fluctuations in the currency market. The parties to the currency future contracts … [Read more...] about Risk Hedging with Future Contracts

Definition: The Forward Contract is an agreement between two parties wherein they agree to buy or sell the underlying asset at a predetermined future date and a price specified today. The Forward contracts are the most common way of hedging the foreign currency risk. The foreign exchange refers to the conversion of one currency into another, and while dealing in the … [Read more...] about Risk Hedging with Forward Contracts

Definition: The Hedging is a financial technique that helps to reduce or mitigate the effects of measurable type of risk from the future changes in the fair value of commodities, cash flows, securities, currencies, assets and liabilities. It is a kind of an insurance that do not eliminate the risk completely but mitigate its effect. In other words, it is a risk-reducing tool … [Read more...] about Hedging

Definition: The Executive Compensation refers to the financial payment and other non-monetary rewards given to the top executives in exchange for their services to the organization. In other words, the executive compensation is the remuneration package given to the higher management of the firm for their work on the behalf of the organization. The kind of employees that are … [Read more...] about Executive Compensation

Definition: The Black-Scholes Model is the options pricing model developed by Fischer Black, Myron Scholes, and Robert Merton, wherein the formula is used to calculate the theoretical price of the European call and put option based on five determinants: Stock price, strike price, volatility, expiration date and the risk-free interest rate. The formula to calculate the price … [Read more...] about Black Scholes Model

Definition: The Employee stock option scheme or ESOs is the form of executive compensation, wherein the selected executives are given a certain number of shares of the firm. Here, the employees have the right, but not the obligation to buy or sell the company’s shares at a specific date and at a specific time. The companies listed on the securities exchange must comply with … [Read more...] about SEBI Guidelines on Employee Stock Option Scheme